Below is a summary of some of the relevant news items from the Capital Markets and the Economy from the past week extracted from RBC Global Insights and FactSet Research.

 

Markets

Market scorecard as of close on Friday July 22, 2022.

Equity Indices	Level	1 week	YTD
S&P/TSX Composite	18,983	3.2%	-10.6%
S&P 500	3,962	2.5%	-16.9%
NASDAQ	11,834	3.3%	-24.4%
Euro Stoxx 50	3,596	3.4%	-16.3%
Hang Seng	20,609	1.5%	-11.9%

Source: Bloomberg, RBC Wealth Management

• TSX closed lower in Friday afternoon trading. Most sectors lower, health care, tech, energy and materials the outsized decliners with real estate, utilities, and staples the leaders. Canadian equities rose 3.2% in weekly trading.

• US equities finished lower in Friday trading, though off worst levels. However, stocks still logged big weekly gains with upside leadership from growth, which outperformed value by ~150 bps. Treasuries rallied with the curve steepening and yields are near lowest levels since late May.

• Risk off the theme on Friday on the back of another round of softer macro data and a flurry of disappointing earnings releases. Next big catalysts for the market are Wednesday's FOMC meeting (75 bp rate hike expected), Thursday's Q2 GDP print (back to back contractions expected) and Big Tech earnings.

• While we acknowledge that the business cycle has matured, we note that there is a distinction between the economy and the equity market. Put simply, stocks tend to be forward-looking, meaning current prices are based in part on expectations for the future. Therefore, the correction that has occurred so far in 2022 may have largely priced in a mild recessionary scenario, in our view. [Global Weekly Insight by RBC Wealth Management Global Portfolio Advisory Committee, July 21, 2022]

 

Economy

Canada

• Retail sales increased 2.2% to $62.2B in May, recording the fifth consecutive increase and beating consensus of a 1.5% gain.

• Bank of Canada Governor Tiff Macklem said that inflation rates will remain painfully high for rest of 2022, probably start with a seven for the rest of the year. Macklem reiterated he expects inflation to slow as interest rates go higher. Economists noted the challenge on bringing inflation back on target with current drivers outside of the BoC's control. Press discussed peak inflation as inflation came in at 8.1% slightly below consensus with gasoline prices the biggest driver. Crude has already dropped near ~8% this month putting less pressure on the July reading.

U.S.

• Economic data released thus far this week have been less constructive than in recent months in terms of their read-throughs on the economy, but the silver lining is that the recent data are relieving some pressure on the Fed in terms of rate hikes.

• Housing starts declined 2.0% in June relative to May levels, surprising markets given the consensus expectation of 2.9% growth, while existing home sales also came in lower than expected.

• On the labor front, initial unemployment claims climbed more than expected to 251,000 for the week ending July 15, bringing the four-week moving average to 241,000–the highest level this year, but in line with pre-pandemic averages.

Further Afield

• The European Central Bank (ECB) raised interest rates by 50 bps on Thursday, putting an end to the era of negative interest rates with its first rate hike in more than a decade. The central bank pointed to rising inflation risks and the depreciation of the euro against the U.S. dollar in its rationale for the outsized move.

 

Notes About Companies in Model Portfolio

• BlackRock (BLK) reported Q2 revenue of $4.53 billion and operating income of $1.72 billion. BlackRock generated net inflows of $90B in Q2. Chairman, CEO Laurence Fink: "H1 of 2022 brought an investment environment that we have not seen in decades. Investors are simultaneously navigating high inflation, rising rates and the worst start to the year for both stocks and bonds in half a century, with global equity and fixed income indexes down 20% and 10%, respectively."

• Johnson & Johnson (JNJ) Reported Q2 2022 results on Tuesday. Total sales growth of 3.0% to $24.0 Billion with operational growth of 8.0%* and adjusted operational growth of 8.1%. Earnings per share of $1.80 decreasing 23.4% and adjusted earnings per share of $2.59 increasing 4.4%. The Board of Directors has declared a cash dividend for the third quarter of 2022 of $1.13 per share on the company’s common stock.

• Royal Bank of Canada (RY) announced that Mirko Bibic will be appointed to its board of directors, effective August 1, 2022. Mr. Bibic will join the Risk and Governance Committees. Mr. Bibic is President and Chief Executive Officer of BCE Inc. and Bell Canada, Canada's largest communications and media company, a position he has held since January 2020.

• TD Bank Group (TD) announced on Tuesday that it expects The Charles Schwab Corporation's ("Schwab") second quarter earnings to translate into approximately CDN $268 million of reported equity in net income of an investment in Schwab for the Bank's fiscal 2022 third quarter. Excluding acquisition-related charges of approximately CDN $12 million after-tax and amortization of acquired intangibles of approximately CDN $35 million after-tax, adjusted equity in net income of an investment in Schwab will be approximately CDN $315 million. TD Bank Group will release its third quarter financial results and host an earnings conference call on August 25, 2022.

• UnitedHealth Group (UNH) reported Second Quarter 2022 results of revenue of $80.33 billion (13% Year-Over-Year) and earnings from Operations were $7.1 billion, a growth of 19% Year-Over-Year. UnitedHealthcare provides health care benefits globally, serving individuals and employers.

 

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Shiuman